· The most recent case in a confused
area of law seems to show that forfeiture by peaceable re-entry escapes the
statutory insolvency moratorium
· There is now an urgent need for
these questions to be considered in a higher court
The relationship
between landlord and tenant law and the statutory insolvency regime has long
been fraught with difficulties. A long-running problem concerns the extent to
which various provisions of the Insolvency Act 1986 either inhibit or preserve
a landlord’s right to forfeit a lease. A series of first instance cases during
the 1990s have come to conflicting conclusions. The most recent, In Re Lomax
Leisure Ltd [1999] 23 EG 143, certainly adds to the disagreement and
reinforces the need for this area of law to be examined by a higher court.
In many
circumstances the 1986 Act effectively imposes a moratorium on actions against
an ailing company/debtor and its property. For example, legal proceedings
cannot be commenced or continued (except by the leave of the court) while an
administration order is being considered or is in force; after a winding-up order
has been made or a provisional liquidator appointed; where an interim receiver
has been appointed; where an interim order against an individual is in force
(as a preliminary to a voluntary arrangement); and where a bankruptcy order has
been made.
It is clear that
these restrictions apply where a landlord is seeking to exercise a right of re‑entry
by way of court proceedings, but there has been a distinct lack of consensus as
to whether a landlord is, in effect, able to steal a march on other creditors
by forfeiting by peaceable re-entry. The case law is rendered more complex by
the fact that the relevant statutory provisions are all slightly differently
worded. This means that, depending on the circumstances, it has been variously
argued that forfeiture by peaceable re-entry is brought within the insolvency
moratorium either because it is a ‘legal process’, or because it amounts to the
enforcement of a ‘security’, or because it is a ‘remedy against property’.
Sections 10 and 11
(administration orders) and section 252 (interim orders) prevent the
commencement or continuation of any ‘proceedings and or other legal process’
without leave. It has therefore been argued that while forfeiture by peaceable
re‑entry is not a legal proceeding, it is a legal process. This was
accepted by Harman J in Exchange Travel Agency Ltd v Triton Property
Trust plc [1991] 2 EGLR 50. However, in Re Olympia & York Canary
Wharf Ltd [1993] BCC 154 Millett J disagreed; in his opinion the phrase
‘legal process’ could not cover a non-judicial step. His view was adopted in McMullen
& Sons Ltd v Cerrone [1994] 1 EGLR 99 and Re Debtors Nos
13A10 and 14A10 of 1994 [1995] 2 EGLR 33. It would therefore appear that,
on balance, this wording will not operate to prevent forfeiture by peaceable
re-entry.
In the case of
bankruptcy, section 285(3) prevents the commencement of legal proceedings
without leave and also provides that no creditor shall ‘have any remedy against
the property’ of the bankrupt. Here, the legal position does seem to be clear
since it was held by the Court of Appeal in Ezekiel v Orakpo [1976]
2 EGLR 47 that forfeiture is not a remedy against property in respect of a
debt. Subject to the right to claim relief, its effect is simply to determine
the tenant’s interest; it is not, as such, a remedy. This view was certainly
accepted in Razzaq v Pala [1997] 2 EGLR 53. Accordingly,
forfeiture by peaceable re-entry does not fall foul of this restriction.
In the case of
administration orders, sections 10 and 11 also prevent the taking of any steps
‘to enforce any security over the company’s property’ without the consent of
the administrator or the leave of the court. Until recently, this has
consistently been regarded as covering forfeiture by peaceable re-entry. The
Exchange Travel Agency and Olympia & York so concluded, and two
other cases, Doorbar Alltime Securities Ltd (No 2) [1995] BCC 728 and March
Estates plc v Gunmark Ltd [1996] 2 EGLR 38, have applied the same
reasoning in the context of voluntary arrangements. However, this view is now
being challenged.
In Razzaq Lightman
J departed from this line of authority (including his own previous decision in Gunmark)
and ruled that forfeiture by peaceable re-entry does not amount to the
enforcement of a security. While accepting that many cases ‘colloquially’ refer
to a right of re-entry as a security, he was satisfied that Ezekiel was
clear authority that it is not a security in the strict legal sense. It is this
case that Neuberger J has chosen to follow in Lomax. He, too, was
convinced that the earlier cases had got it wrong and he was able to find
further support for this in some of the comments in the recent House of Lords
ruling in Christopher Moran Holdings Ltd v Bairstow [1999] 14 EG
149.
It therefore
appears that, for the time being at least, forfeiture by peaceable re‑entry
largely escapes the insolvency moratorium and either gives the landlord an
advantage over other creditors or allows him to put at risk a rescue package.
In cases where this conclusion has been reached, the court has done so with
some reluctance, since the judges have well recognised the anomaly of
interpreting the legislation in a way which prevents forfeiture by court
proceedings but allows peaceable re-entry. It is, however, a necessary result
of the wording of the 1986 Act and, therefore, a matter for parliament to
resolve. At a practical level, it should however be remembered that, even where
the forfeiture is valid, the ordinary rules of relief still apply. In both Razzaq
and Lomax the court was able, at least in part, to retrieve the
position by granting relief. In Lomax this meant that the company did
not lose its major asset, the continued retention of which was vital to its
survival.
